VIDEO: How 2 Holdings Benefit From Major Acquisition News

In today’s Daily Rundown Video, Chris Versace reviews the Portfolio’s decision today to pick up additional shares of Costco COST and interprets Taiwan Semi’s TSM June quarter revenue implications for some of our holdings. 

Chris also explains how Bank of America BAC and Morgan Stanley MS stand to benefit from WK Kellogg KLG being acquired by Ferrero Group and why Samsung’s SSNLF unpacked event is bullish for this holding. He also discusses Thursday's pullback in Axon AXON and why we remain not only bullish but interested in adding more shares back to the Portfolio at the right price.  

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. It is Thursday, July 10. I hope you enjoyed the latest Stocks & Markets Podcast that we published yesterday. We had a great conversation on small-cap stocks. And I have to say that if you heard what Thomas Brown had to say about one of the particular positions they have, you know it perked up my ears. It's a stock that we will be taking a closer look at. And for those who may not be following, I'm specifically referring to the one that he called out benefiting from the aging of the population theme that we have.

But that was yesterday, folks. Let's get going with the business at hand today. As you hopefully saw by now, we picked up some more shares of Costco for the portfolio. This was a combination of using the recent pullback in the shares, but more importantly, the June revenue report and what it showed. Obviously, Costco continues to take consumer wallet share.

We saw that in its adjusted figures, both in the US for e-commerce, but more importantly, when we cross-examine it against what other companies have had to say, whether it is Conagra, whether it was Buckle, or, as we did in the note-- we dug into quarterly results and guidance for Kroger. There's little question that Costco continues to win consumer wallet share.

And as you can imagine, we continue to really like the upside potential with this membership-driven warehouse company, especially as it's poised to feel more of its 2024 price increase on the high-margin membership revenue stream. So continue to like the shares, hence our move today.

Also earlier today, we did touch on Taiwan Semiconductors' June revenue and what that meant for its June quarter. All in all, TSM's June quarter revenue was up about 39%, year over year, 11% sequentially, compared to March. Obviously, this is very bullish for the AI sector. And of course, that means very good things for a number of holdings in the portfolio.

But, as I hinted in the note, we will be looking to address some price targets-- NVIDIA, perhaps; Marvell, perhaps; or a few others, after Taiwan Semiconductor reports next week. That'll give us not only greater clarity on its end markets for the June quarter, but we'll also get what it sees ahead for those same end markets. And just to refresh, for some folks, that's going to be high-performance computing, which is AI and data center, as well as connected devices, PCs, smartphones, and the like. So, for a number of positions, we'll be paying very close attention to what Taiwan Semiconductor has to say next week.

We also talked a little bit this morning about how there's a lot of headlines going on regarding Amazon and Prime Day-- some very, very positive about the volume of sales, others saying some weakness, not as strong as expected. And our perspective is that, when you look at the event in the past, it's always been a two-day event, so there's a shorter window for consumers to buy and take advantage of those deals.

But this year round, as we know, it's a four-day event, so more likely, consumers are going to be taking their time, looking for, potentially, better deals later in the event than early in the event. So we're going to assess all four days in total. But so far, I have to say that, as we kick off the second half, the Thursday, Friday of Prime Day 2025, we're pleased with what we saw thus far, especially when we balance it against some of the other data points that show consumers are becoming increasingly selective.

I'm referring to the Visa data that we shared about discretionary and nondiscretionary spending, not just in the month of June, but over the last few months. So we continue to see, obviously, Costco and Amazon are extremely well positioned. We also like what that data hints at for our newest position, which is TJX. And yes, that is a company-- or a stock, I should say-- that we are interested in picking up more shares for the portfolio.

But let's move on from what we talked about this morning to some fresh things. Earlier this week, we talked about how Morgan Stanley is poised to benefit from Merck's latest acquisition. I'm referring, of course, to its investment banking business. Well, today we can say that is the case for both Morgan Stanley and Bank of America. Why? Well, both should see their investment banking businesses benefit because they are both involved on opposite sides of the WK Kellogg takeover transaction that was announced this morning.

Obviously, as we look forward for the guidance, given the timing of this transaction, as well as the Merck transaction in July, it tells us that M&A activity is picking up. And certainly for Morgan Stanley, the outlook for the current quarter should be very good, but also, too, for Bank of America as well, given its investment banking business.

Now, both companies are going to report next week. That'll give us another shot to revise our price targets, potentially, leading into that, about a day or so ahead of when Morgan Stanley and Bank of America report. We are going to hear from other big banks-- JP Morgan, Wells Fargo, Citi.

So we'll be assessing their comments, not just about investment banking, but about trading, about overall commercial banking activity, loan activity, that sort of thing. And that's going to set the stage, more so for what we hear from Bank of America, given its wider array of financial services that it offers, but also, too, for Morgan Stanley. And again, as we move through these amalgamated reports, we will be revisiting our price targets for Morgan Stanley and Bank of America as needed.

I also wanted to talk a little bit about Universal Display. Why? Well, yesterday Samsung had its Unpacked event, something we telegraphed a few weeks ago. And yes, as expected, the company unveiled its latest array of flip smartphones that have not only multiple displays, but stretchable displays, so of course we know they're using organic, light-emitting diodes. These new models-- the displays are even bigger than past ones, which means they are consuming more organic, light-emitting diode materials per device-- obviously, a positive for our shares of Universal Display.

Now, remember, we've continued to follow the movement of flip smartphones. And yes, we are still waiting for Apple to do that. It's widely expected to bring its first flip models to market sometime in 2026. So, as the industry moves toward flip phones, and most likely is jump-started by Apple moving into that market, we continue to be very bullish on OLED shares, longer-term.

Let's also remember that we continue to see the overall connected-device industry-- PCs, notebook computers, monitors, as well as automotive lighting-- move toward organic, light-emitting diodes, obviously very good for our shares of Universal Display. And we will be paying close attention to Taiwan Semi's outlook for all of those markets in the back half of 2025, again, when it reports next week.

Finally, I just wanted to touch on Axon shares. You may have noticed that they are trading off today. There doesn't appear to be any new developments-- at least, certainly, no new negative developments. The one development I would say that has happened is that Wolfe Research initiated coverage on the shares earlier this week with a fresh "Outperform" rating, so we can surmise that is certainly not weighing on the shares today.

Rather, what I would say is let's remember that Axon's beta is higher than that for the market, so we should expect it to be a little more volatile, should the market get a little volatile. So we will be patient, continuing to stick to the fundamentals when it comes to this position. And in that regard, we do like what we're seeing, particularly on the drone front.

We'll be sharing much more on this on Saturday with our next signals email, but we are seeing a wider array of drone adoption in the public safety market. Now, let's remember about the drones, just like body cameras and some of Axon's other hardware, these are the devices that connect back to and help sell Axon's higher-margin services business, which is also benefiting from AI adoption, both from a revenue perspective and a margin perspective.

So our position on Axon is that, even after we sold some in late May, locking in a 50% gain, we are interested, at the right price, of picking up more shares for the portfolio as Axon's business continues to shift towards this higher-margin services business, which is also far stickier and recurring-revenue nature than the hardware business.

So we're going to continue to watch Axon shares. And trust me when I say that, when we make our move with Axon shares, assuming we do, at some point, we will be letting in a trade alert. So stand by. I don't expect anything soon, but rest assured we're going to continue to follow the developments on Axon shares.

And that, my friends, is today's video. Please remember to check your emails, check your inboxes. We will be having a lot more comments coming to you today and as we move through the end of the week. And of course, if we make any moves with the portfolio, like we did today with Costco shares, we want to make sure that you are right there with us.

At the time of publication, TheStreet Pro Portfolio was long COST, BAC, MS and AXON.